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Interbank loans, collateral and modern monetary policy

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  • Wolski, Marcin
  • van de Leur, Michiel

Abstract

This study develops a novel agent-based model of the interbank market with endogenous credit risk formation mechanisms. We allow banks to exchange funds through unsecured and secured transactions in order to facilitate the flow of funds to the most profitable investment projects. Our model confirms basic stylized facts on (i) bank balance sheet distributions, (ii) interbank interest rates and (iii) interbank lending volumes, for both the secured and the unsecured market segments. We also find that network structures within the secured market segment are characterized by the presence of dealer banks, while we do not observe similar patterns in the unsecured market. Finally, we illustrate the usefulness of our model for analysing a number of policy scenarios. JEL Classification: C63, E17, E47, E58

Suggested Citation

  • Wolski, Marcin & van de Leur, Michiel, 2016. "Interbank loans, collateral and modern monetary policy," Working Paper Series 1959, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20161959
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    Cited by:

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    2. Otto, C. & Willner, S.N. & Wenz, L. & Frieler, K. & Levermann, A., 2017. "Modeling loss-propagation in the global supply network: The dynamic agent-based model acclimate," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 232-269.
    3. Alexey Ponomarenko & Andrey Sinyakov, 2017. "Impact of Banking Supervision Enhancement on Banking System Structure: Conclusions Delivered by Agent-Based Modelling," Bank of Russia Working Paper Series wps37, Bank of Russia.

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    More about this item

    Keywords

    agent-based models; collateral; interbank lending; networks; repo;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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